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Softbank set to pull the plug on Sprint T-Mobile merger, or is it?

In the absence of any recent romcoms coming out of Hollywood, Sprint and T-Mobile US are doing their best impression of a will-they/won’t they drama.

The latest chapter of the saga is a trough. According to Nikkei, it’s over, they’ve gone their separate ways. At this point in the movie, one would be out in a bar, sozzled and throwing crazy shapes to Taylor Swift, trying to find another partner, while the other would be crying into a tub of ice cream watching the Notebook.

The currently unconfirmed reports claim Softbank is the one which is ready to walk away, though this might be confirmed in the near future. Softbank executives plan to inform counterparts at T-Mobile US today (Tuesday), and the market not happy about the rumours. Over the course of the day, shares in the Japanese telco have dropped almost 5%, though the same cannot be said about Deutsche Telekom, where the price has remained steady.

Who knows whether this is a genuine breakup or if it is just a negotiating tactic, but investors seemed to have picked up on what we already knew in the telco space; Sprint needs this merger more than T-Mobile US does. Perhaps someone should tell the Softbank execs they do not have the upper hand in this negotiation.

The reported reasoning behind the split is down to control. Deutsche Telekom wanted to negotiate a controlling stake in the newly merged entity, which was apparently accepted to start with, though the Japanese still wanted to exercise some influence over decision making. Now it seems executives at Softbank aren’t happy at relinquishing control, and are prepared to ditch any deal which would see the Germans gain the upper hand.

What Softbank doesn’t seem to realize is that T-Mobile US doesn’t explicitly need this deal. It would be a nice to have, the customer base would immediately increase, coverage would be cemented and more efficient network investments could be realized, but this is a telco which is growing at a very attractive rate already. This deal would be to capitalize on momentum, not reverse ill fortunes.

Sprint used to be number three in the states, and now it is number four. But even these numbers are flattering. Sprint was never in a position to challenge the duopoly at the top of the US table. We’re not just talking about a different ballpark, we’re talking a different sport. Irrelevant of what metrics you look at, Sprint has been going downwards for some time, and this was only reinforced by the latest earnings call.

Back in Q2, Sprint recorded a profit of $206 million, but this now seems little more than a false dawn as the telco returned to the norm in Q3, with a loss of $48 million. On the flip side, T-Mobile US brought in $10 billion in total revenues, up 8% y-o-y, net income of $550 million, up 50% y-o-y. In terms of customers, the team is claiming 1.3 million total net additions for the quarter, the 18th straight quarters of adding more than 1 million.

T-Mobile US is growing healthily, and providing a genuine alternative to customers, something Sprint was not able to do during its long tenure in the number three spot. Why Softbank feels it can play hardball is beyond us. T-Mobile US doesn’t explicitly need this merger, things are already on track, Sprint does however.

And just like every good will they/won’t they story, this is unlikely to be the final chapter. Softbank CEO and Founder Masayoshi Son is an incredibly rich man, and with success usually comes a sense of arrogance. Why would he want to take a backseat at a company which could have the potential to challenge the US duopoly?

Over at our sister-site Light Reading, Dan Jones has heard a couple of rumours which might add substance to the arrogance thought. Apparently a clash of large egos is the cause of the downward spiral, but sources believe there is still a 70-80% chance the deal will go ahead.

Perhaps the message here is the Son-way or no-way. It wouldn’t surprise us, so there might just be another development before too long.

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